“The Oil and Gas Weapon Won’t Work”: Davis & Leggett on Ukraine

Lt. Col. Daniel Davis & Jeremy Leggett in The National Interest: “After many weeks of political chaos and bloodshed in Kiev, Moscow sent soldiers across the frontier into the Crimea on February 27, claiming it aimed to protect the Russian-speaking population.” “Writing in the Washington Post on March 7, former US Secretary of State Condoleezza Rice captured the essence of many in the US who advocate using oil as a weapon against Russia. She wrote that “soon, North America’s bounty of oil and gas will swamp Moscow’s capacity. Authorizing the Keystone XL pipeline and championing natural gas exports would signal that we intend to do precisely that.” Secretary Rice’s assumptions regarding the state of US tight oil and gas as “bountiful” are common among many opinion leaders in the West. They also happen to be wrong.

Before contemplating the use of US oil and gas as a strategic weapon, it might be useful to review a few key fundamentals. First, consider the following oil production, consumption and import/export numbers reported by British Petroleum for 2012. Russia produced 10.6 million barrels per day (mbd), consumed 3.2 mbd, leaving 7.4 mbd available for export. The United States produced 8.9 mbd, consumed 18.5 mbd, and imported 10.5 mbd.

All the talk of America “soon overtaking Russia” as the world’s largest oil producer comes with a rather sizeable asterisk: even if that eventually occurs, the US will still be required to import an additional five to six million barrels of oil per day, while Russia would have an additional 7 to 8 mbd to export. This fact places the Russian Federation in a considerably stronger energy-security position than the United States.

Second, such action would likely penalize US citizens. Chris Nelder, an independent energy analyst and journalist hits the nail on the head: “I don’t think U.S. consumers are willing to pay higher prices for natural gas, grid power, and gasoline to enable the uncertain possibility that doing so would ‘stick it to Putin’ some years down the line.”

Petroleum geologist and energy analyst Arthur Berman also warns there would be unintended consequences to exporting American natural gas. “The U.S. imports nearly 4 billion cubic feet of gas per day. It seems a bit premature to be discussing natural gas export when you are a net importer and are likely to remain one until at least 2018 according to the EIA.” Least we forget, conventional gas in the US accounts for almost 60 percent of the total produced and is declining at about 20 percent per year. Unconventional gas, meanwhile, is declining at more than 30 percent each year. “Taken together,” Berman calculates, “the US needs to replace 19 billion cubic feet per day each year to maintain production at flat levels. That’s almost four Barnett shale plays at full production each year.”

It is clear the United States is going to have an increasingly difficult time in the coming years meeting its own gas needs. How it is in America’s energy-security interest to export domestic supplies when the US is already a net-gas importer, however, is not clear.

Part of the problem seems to be a broadly held, though empirically unsupportable position that the US tight oil and gas boom of the past several years is a sustainable and expandable phenomenon. Yet geoscientist David Hughes—a thirty-year veteran of the Canadian Geological Survey whose data derives from over sixty-five thousand oil and gas wells shows what is commonly referred to as the “tight oil boom” is more likely to be a temporary bump.

“The ‘shale revolution’ behind the export enthusiasm lacks staying power,” he concludes, “given the very high well- and field-declines that demand high rates of drilling to sustain. Even the EIA reference case 2014 forecast, which is optimistic compared to actual shale oil production, projects a peak in 2021. Most shale gas plays in the US except for the Marcellus and associated gas from the Bakken and Eagle Ford tight oil plays are flat or in decline, which is likely to mean higher and more volatile prices, such as those seen in the last quarter, strongly contradicting the meme of low gas prices for the foreseeable future.”

Exporting oil and gas now would undoubtedly give oil companies a huge spike in profits, but then in just a few years when the US need for imports will grow, the cost per barrel will likely be much higher than it is now, and that cost will be borne not by the richer oil companies but primarily by middle- and lower-class Americans. The situation in the Crimea is serious and deserves to be dealt with in a responsible manner. But in the emotion of the moment we must avoid making decisions that may not accomplish our international objectives while perversely causing harm to the citizens of the United States.”

Daniel L. Davis, a Lieutenant Colonel in the US Army, is a widely published researcher on national security including energy policy. Dr. Jeremy Leggett is author of the critically acclaimed book The Energy of Nations—Risk Blindness and the Road to Renaissance. The opinions expressed in this article are those of the authors alone and do not represent the views of the Department of Defense or the Department of the Army.